Case-Shiller Helps Us Predict the Past

Takeaway:
The rearview report for May (effectively April data for CS) says…..

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

Today's Focus: May S&P/Case-Shiller Home Price Report

Key Takeaways

With June data from Corelogic in hand for almost a month already, we knew the slope and likely magnitude of the deceleration for case-shiller in May, but it's nice to get the official confirmation. We should get the Corelogic home price report for July either this Friday or Monday next week, which will be the far more important report.

* Home Prices growth slowed for a sixth consecutive month, decelerating -148bps sequentially in May to +9.3% YoY. This was the second biggest month of deceleration since August of 2010 (last month was the largest at -155bps).

* Notably, May marked the 1st month of negative MoM price growth since January 2012 in the seasonally-adjusted series.

So, all the primary price series continue to tell a cohesive story of deceleration – one which we expect to continue through the back half of the year.

Bottom Line:

Housing-related equities follow the path of HPI. So long as HPI is decelerating, housing equities will move sideways to lower. We can forecast HPI's path by looking at demand trends on a 12-18 month lead/lag basis. Our expectation is that prices continue to decelerate throughout 2H14 and potentially into 1H15.

About Case Shiller:

The S&P/Case-Shiller Home Price Index measures the changes in value of residential real estate by tracking single-family home re-sales in 20 metropolitan areas across the US. The index uses purchase price information obtained from county assessor and recorder offices. The Case-Shiller indexes are value-weighted, meaning price trends for more expensive homes have greater influence on estimated price changes than other homes. It is vital to note that the index’s printed number is a 3-month rolling average released on a two month delay.

Frequency and Release Date:

The S&P/Case-Shiller HPI is released on the last Tuesday of every month. The index is on a two month lag and therefore does not reflect the most recent month’s home prices.

Joshua Steiner, CFA

Christian B. Drake

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07/29/14 09:46 AM EDT

WYNN 2Q 2014 CONFERENCE CALL

CC Commentary: best ever July in LV is good. Best July ever in Macau since 2011 is not that big of a deal - Wynn's market share is up (high hold) YoY with a market that's slightly down.

CONF CALL

Wynn Cotai: 18 months out; on budget, on schedule. On track to open CNY 2016.

Pushing $50m in July in Las Vegas; would like to target $500m for 2014

Macau non-gaming revenue: weakness in launch boutique areas

Construction on whole south end of Wynn Macau: $60m, renovation scheduled to finish CNY 2015; lower slot counts due to the renovation. May or may not bring back those slots in the future...focused on profitability per slot

Peninsula promotional expenses going higher? Margins have remained very steady on mass and slots

Demand for WYNN product are more elastic, relative to their competitors

High-end Chinese consumers looking at gaming as part of their normal entertainment budget. Seeing more new VIP customers. Bodes well for the long-term.

LV: domestic gaming have not grown since 2007; other segments have done well

Macau table metrics: VIP per unit/day: 32k, MASS per unit/day: 17k

Macau table count: 263 vip, 191 mass (#s down due to construction)

Parisian/MGM Cotai construction in Macau: non-existent or stalled

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07/29/14 09:41 AM EDT

KEITH'S MACRO NOTEBOOK 7/29: EUROPE UST 10YR GOLD

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Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

THERE’S ALWAYS A BULL MARKET SOMEWHERE

Client Talking Points

EUROPE

The bounce isn’t bouncing. Greece is down -0.7%, Portugal is down -0.4%, Russia is down -0.4% (-13.5% year-to-date) this morning as almost every major European equity index remains below @Hedgeye TREND risk resistance.

UST 10YR

The UST 10YR Yield is back down to 2.47% this morning and the Yield Spread (10yr minus 2yr) is compressing to a fresh year-to-date low of +193bps (that’s -20bps since July 7th when the Russell topped). Regional Banks (KRE) were down -1.1% yesterday. #Q3Slowing sinks in.

GOLD

There’s always a bull market somewhere. Gold loves U.S. economic stagflation, and has once again held immediate-term TRADE support, moving back up to $1308 (big breakout line = $1323) and we might get that this week if A) GDP misses again and B) Janet freaks out about growth slowing, housing, etc.

Asset Allocation

CASH

28%

US EQUITIES

4%

INTL EQUITIES

14%

COMMODITIES

18%

FIXED INCOME

24%

INTL CURRENCIES

12%

Top Long Ideas

Company

Ticker

Sector

Duration

HOLX

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration. The first survey tool measures 3-D Mammography placements every month. Recently we have detected acceleration in month over month placements. When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner. With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.

OC

Construction activity remains cyclically depressed, but has likely begun the long process of recovery. A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating. Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms. As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.

LM

Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.

QUOTE OF THE DAY

STAT OF THE DAY

McDonald's operates almost 36,000 restaurants worldwide, serving nearly 70 million people in more than 100 countries each day.

07/29/14 08:01 AM EDT

My Dear Gold

This note was originally published
at 8am on July 15, 2014 for Hedgeye subscribers.

“Frankly, my dear, I don’t give a damn.”

-Rhett

That’s what Rhett epically told Scarlett at the end of Gone With The Wind. That pretty much sums up what I think of the Goldman call to sell Gold yesterday too.

Earlier in the movie, Rhett explains the generational gap to Scarlett:

“If you are different, you are isolated, not only from people of your own age but from those of your parents… but your grandparents would probably be proud of you and say, there’s a chip off the old block… and your grandchildren will try to be like you.” (The Fourth Turning, pg 79)

And that pretty much summarizes my generation vs. The Old Wall’s boomer and GI generations. Yes, I’m generalizing to make a point. You can blame my birth year, or blame them. It doesn’t matter. History won’t care. In terms of our Global Macro #process, we are different. And that’s just fine with me.

Back to the Global Macro Grind…

If you ask the bond market what it thought of the GS call to sell Gold yesterday, evidently it couldn’t give a damn either. US 10yr Treasury Yields are back down to 2.53% this morning and remain as bearish as Gold is bullish in our model. If you want to get Gold right, get rates right.

Put another way:

If you are bearish on Q3 US GDP growth slowing, you are A) bullish on bonds and B) bullish on Gold

If you are bullish on Q3 US GDP growth accelerating, you are B) bearish on bonds and B) bearish on Gold (like we were in 2013)

Inclusive of yesterday’s newsy selloff in Gold, don’t forget the context of the move:

Gold is +9% YTD

UST 10yr Bond Yield is -17% (-51bps) YTD

So the Goldman growth bulls have some hay to bail. That’s not a personal attack – I have plenty of friends at Goldman who I hold in the highest regard. It’s just the YTD score.

Since Goldman has some very thoughtful people in their research department, this makes for an interesting bull/bear debate. From a macro perspective, their calls for 2014 are fairly uniform. Their highest profile strategists have a bullish growth and interest rate bias:

Abby Cohen is looking for US growth to accelerate and US Equities to see multiple expansion

Jan Hatzius is trying to get the Fed to pull forward the “dots” (raise rates sooner)

Hedgeye, on the other hand:

Is looking for #InflationAccelerating to slow US consumption growth and perpetuate multiple compression in early cycle stocks

And is trying to front-run the Fed’s decision-making process by predicting they get easier (as the economic data slows) in Q3/Q4

Don’t worry – “front-running” is only a bad compliance word if you’re running a bank, broker dealer, or asset management firm with some sort of inside information. I don’t do that. I just run my mouth.

On our Q3 Macro Themes Call last Friday, I went through the bull case for Gold via our #DollarDevaluation theme (ping sales@Hedgeye.com if you’d like to review our slide deck – I’ll be presenting it in London this week). The sequence of front-running predictable Fed behavior is as follows:

On the margin, Q314 real consumption data slows like the June data did (i.e. the Fed can’t blame FEB weather anymore)

Janet Yellen, being a very particular bureaucrat looking to dot i’s and cross t’s, will want to acknowledge that slowing

By the SEP Fed meeting, Wall Street will be looking at a much more dovish Fed than the tapering one it had at the start of the year

If you agree with me on that:

You short the US Dollar

You buy more Treasuries (and slow-growth #YieldChasing equities that look like bonds)

And you buy more Gold

What I care most about on the GS call is the impact it had on our core 3-factor risk management model yesterday (price, volume, and volatility):

PRICE – Gold held both its immediate-term TRADE line of $1301 and intermediate-term TREND line of $1271

VOLATILITY – implied volatility didn’t move much (it’s still down -2% and -18%, respectively, on a 1 and 6 month basis)

Put another way, Goldman can still move markets, big time, from a volume perspective. But on my score card, when A) price holds my TRADE and TREND lines of support and B) implied volatility is falling, across durations… I buy more.

CHART OF THE DAY: Color-Coded Hedgeye Housing Compendium

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